Report: Energy demand reduction strategies can save Michigan millions

A new report shows that projected electricity reserve margin shortfalls in Michigan's Lower Peninsula can be met by so-called "demand reduction" strategies that also could save businesses and homeowners $1.2 billion over 10 years, according to Advanced Energy Economy, a national trade association.

Demand reduction covers a set of strategies that include situations where commercial and industrial customers are compensated for reducing energy use. Residential customers also voluntarily reduce electricity use of air conditioners and certain appliances through the use of smart meters.

"There are ways to meet Michigan's energy needs by reducing demand that are much lower cost than increasing generation from high-cost power plants," said J.R. Tolbert, vice president of state policy for Advanced Energy Economy Institute, in a statement. The AEE represents solar, wind, nuclear, biofuels, electric vehicles and renewable energy interests.

"Demand reduction not only saves ratepayers money, it makes the electric grid more reliable. As Michigan plans for its energy future, demand reduction strategies should be pursued by regulators and utilities," Tolbert said.

If implemented, the AEE estimates Michigan would enjoy a 2,000-megawatt increase in power from 2017 to 2026, avoiding the need to build additional power plants. The report, Economic Potential for Peak Demand Reduction in Michigan, was prepared for AEE by Demand Side Analytics and Optimal Energy.

"It's simply good business to utilize advanced energy technologies and resources that reduce energy waste," said Liesl Eichler Clark, president of the Michigan Energy Innovation Business Council, in a statement. "Managing how much energy is used – and, as importantly, when it is used – can drive significant savings for Michigan ratepayers. Regulators and utilities searching ways to bring down electricity costs in the state should take this report's findings to heart and implement effective demand reduction programs."

Last December, the Michigan Legislature approved a new energy package that, in part, allows utilities to be rewarded for investments in demand reduction strategies. It also requires the state to increase its renewable energy standard from its current requirement of 10 percent by 2015 to 15 percent by 2022 with an interim requirement of 12 percent by 2019.

A recent study by the Michigan Agency for Energy and the Michigan Public Service Commission along with the Midcontinent Independent System Operator found that additional demand response programs would be the most cost-effective way to fill any gap between supply and demand under conditions that are challenging for the grid.

MISO has predicted shortfalls in required reserve margin planning for Michigan in the coming years, especially during the summer months when electricity demand is highest. States are required to have about a 15 percent reserve electricity margin, which is a percentage of electric generation capacity above peak demand in reserve for emergencies.

Another type of electricity reduction strategy that the MPSC touts is mandated utility energy efficiency programs.

Over the past seven years, electric ratepayers in Michigan have saved more than $5 billion, said the MPSC. For example, utilities in 2015 spent $262 million on various energy efficiency programs that are projected to save ratepayers $1.1 billion over time. The 4:1 return on investment has stayed fairly constant the last several years.

"When compared to building and operating power plants, these programs are the smartest investment by far," said Sally Talberg, MPSC chair, in a statement.

Talberg also supports expanded use of various demand response programs. In a Jan. 31 statement from the Michigan Energy Agency, Talberg said demand response resources are likely to be both cost-effective and can be put in place before the summer of 2018.

In a previous interview with Crain's, James Clift, policy director with the Michigan Environmental Council , said the MPSC and utilities could take additional steps to improve reserve electricity capacity by using demand response strategies. This could help reduce the need to build more power plants, he said.

"My criticism is their failure to require the utilities to implement those non-generation-based programs (demand response) that reduce risks related to capacity at costs which are substantially less than building new power plants," Clift said.